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Is the nation ready for WTO challenges?

Update: April, 28/2006 - 00:00

Is the nation ready for WTO challenges?

(28-04-2006)

Several international experts in Viet Nam spoke with Thoi bao Kinh te Viet Nam (Vietnam Economic Times) about the opportunities and challenges of Viet Nam’s accession to the World Trade Organisation (WTO).

Scott Cheshier, UNDP economist

I would like to emphasise that Viet Nam is well positioned for WTO entry, with globally competitive exports in several industries and sectors. The terms of entry to WTO are important and accession will transform Viet Nam.

However, Viet Nam’s success after WTO entry depends on the ability of the country to respond and adapt to challenges that it will face in the new situation. This will critically depend on how government policies and domestic businesses meet these challenges.

Currently, Viet Nam is very competitive in primary and low value-added goods: garments, footwear, crude oil, and seafood to name a few. It is necessary to remain competitive in these areas as they generate jobs and bring in foreign exchange.

However, diversifying production into higher value-added products is crucial for continued development. This will become more difficult after WTO entry. To diversify production, and increase and upgrade technology, government assistance is required. It is very difficult for businesses to do this on their own.

This is not to say that Viet Nam should stop producing and exporting garments, footwear and seafood. While these areas are still important, for the nation to acquire the middle-income country status emphasis should be given to higher value-added products. This does not mean building spaceships or large-scale capital intensive projects, but exporting canned fruit instead of unprocessed fruit. It is about adding value, packaging, and quality. The little things that helps products move up the value chain.

Viet Nam should play to its strengths. It is well endowed with natural resources and is currently exploiting them successfully but in a low value-added way. For example, you produce rubber and exports it, but you have to also make rubber gloves and export them too.

Nevertheless, for continued economic growth the country and the business community needs to produce more high technology products. This will require a national technology policy. However, the government does not have a clear technology policy even though it consistently calls for improving technology levels in Vietnamese firms. Some elements are in place but are poorly co-ordinated. Heavy emphasis has been placed on foreign investment to bring technology to Viet Nam. The issue, however, is in Vietnamese firms benefiting from these investments and themselves adding value to their products.

Le Quoc An, Chairman, Viet Nam Garment and Textile Association

In the current circumstance, each enterprise in the textile and garment sector should focus on creating a trademark for their products depending on their markets, either domestic or export markets. The domestic market, with a population of over 80 million, still psychologically prefer imported products. However, there has been a turn around with many accepting exciting Vietnamese products and trademarks.

So enterprises should invest in creating trademarks for their products in the domestic market. As for foreign markets, most of the customers are aware of famous labels of foreign producers and designers. It is very difficult for Vietnamese fashion trademarks to penetrate these markets. There are a few Vietnamese companies and trademarks like Phuong Dong Company’s F-House, Viet Tien Company’s Vee-Sendy and Viet Fashion Company’s Nino Maxx, which have created an impression in the foreign markets. But these are still initial steps.

We should not invest in building trademarks in foreign countries at the moment. Rather, we should build export enterprise trademarks focusing on product quality, on time and speedy delivery and socially-committed production.

Vietnamese textile and garment enterprises should build and popularise product trademarks in the domestic market and enterprise trademarks in foreign markets.

Martin Gainsborough, UNDP economist

It is clear that the Vietnamese Government is being pushed extremely hard to make concessions across a broad range of areas. Overall, it is expected that Viet Nam will enter the WTO on tougher terms than other recent entrants, such as China and Cambodia. In particular, this means reduced transition periods for implementing its WTO commitments. In theory, this means Viet Nam’s economy will become more open more quickly. This is good if greater openness is what you are looking for, but the corollary is that this gives Vietnamese firms less time to adjust to increased competition.

The key question is what Viet Nam’s entry into the WTO will really mean both in terms of actual levels of economic openness, and predictability of the business environment, as well as the question of how well Vietnamese firms will cope with increased competition. The reality is that while WTO membership offers Viet Nam the potential for significant long-term gains, implementing the terms of the agreement cannot be done without some pain.

Overall, WTO membership will result in greater investment opportunities in Viet Nam as the service sector is liberalised. Equal treatment for domestic and foreign investors is gradually becoming a fact. As tariff barriers are lowered, the costs of some imports are likely to fall.

This will assist import-dependent manufacturing firms, seeking to become more competitive, to reduce production costs. WTO membership will almost certainly have a positive, knock-on consequences for economic growth. In theory, WTO membership ought to offer Vietnamese exporters non-discriminatory access to the markets of fellow WTO members.

However, in practice, access is likely to be more restricted. That said, once inside the WTO, Viet Nam will have access to WTO dispute-settlement mechanisms, which it currently does not have.

The key risk associated with WTO membership clearly relates to the ability of Vietnamese firms to cope with increased competition. However, we are reasonably optimistic. There will be bankruptcies, but the picture is more likely to be of individual firms experiencing difficulties rather than whole sectors.

Mattias Forsberg, First Secretary, Embassy of Sweden in Viet Nam

Three-quarters of the WTO’s members are developing countries. The main reason for developing countries to join the WTO is the expected increase in exports from improved access to international markets. Viet Nam is also hoping to boost foreign investments with WTO membership. Furthermore, the benefits of the WTO dispute-settlement mechanism are clear and a membership will give Viet Nam the possibility to influence and shape trade rules.

In comparison to the earlier rounds of negotiations, the developing countries are now far better organised. Viet Nam has good potential to influence global trade policies if it co-operates with other nations.

The recent agreement in Hong Kong on phasing out export subsidies by 2013 shows the increased role that developing countries play in WTO negotiations. It has a great symbolic value and has boosted the perception of developing countries of what they can accomplish within the WTO.

The factors that restrict a country’s participation in world trade are basically the same as those that lie behind its weak economic and social development. Such internal barriers are physical, institutional and a result of developmental policies.

Viet Nam’s growth in the past decade can largely be attributed to increased exports. WTO accession will force Viet Nam to further open up its economy to international competition. This will affect national developmental strategies.

By joining WTO, Viet Nam can enjoy the benefits of economic integration. It is, however, necessary to view this integration in a wider perspective and adopt policies ensuring that the benefits are distributed fairly among the population.

A crucial challenge and opportunity for Viet Nam in this work is to co-operate with other nations to push for further liberalisation – for developed countries to reduce protectionism and, regionally, between trading neighbours.

I am convinced that Viet Nam can and will benefit from WTO membership. I am also convinced that Viet Nam can strengthen the interests and negotiating position of developing countries in WTO, thereby helping to promote global development and better conditions for the poor in many countries. — VNS

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